Health Portfolio Audit Outcomes 2014-15: Strengthening Accountability and Governance

1. Briefing to the portfolio committee on 13 October 2015Audit outcomes of the health portfolio and health sector for the 2014-15 financial year October 2015

2. Reputation promise/mission The Auditor-General of South Africa has a constitutional mandate, and, as the supreme audit institution (SAI) of South Africa, it exists to strengthen our country’s democracy by enabling oversight, accountability and governance in the public sector through auditing, thereby building public confidence.

3. Purpose of the presentation Annually oversight committees set aside time to focus on assessing the performance of departments. On completion of the process, portfolio committees are required to develop department-specific reports, namely budgetary review and recommendations reports (BRRR) which express the committee`s view on the department’s budget for recommendation to the National Treasury ahead of the following year`s budget period. Our role as the AGSA is to reflect on the audit work performed to assist the portfolio committee in its oversight role of assessing the performance of the departments taking into consideration the objective of the committee to produce a BRRR.

4. The scope of AGSA audits

5. Contents Slide no. Health Portfolio : 1. Overall audit outcomes for health portfolio 7 2. Unauthorised/ Irregular / Fruitless & Wasteful expenditure 11 3. Section 4(3) outcomes for the Health portfolio 13 4. Combined assurance and assessment of assurance providers 15 5. Minister’s commitments to address root causes 16 Health Sector : 6. Overall audit outcomes for health sector 18 7. Overall improvement in audit outcomes 19 8. Movement of audit outcomes from 2013/14 and 2014/15 20

6. Contents Slide no. 9. Qualification areas 21 10. Auditor-General focus areas 22 11. Unauthorised/ Irregular / Fruitless & Wasteful expenditure 25 12. Root causes should be addressed (top three)27

7. 1. Overall audit outcomes – health portfolio Key controls Assurance levels Overall stagnation in audit outcomes Senior management First level Accounting officer/authority Executive authority Second level 2 (CMS, MRC) 1 (NDoH) Internal audit unit 3 (CMS, MRC, NDoH) Audit committee 3 1 2 … the key role players need to assurethat … … attention is given to the key controls and… To improve/maintain the audit outcomes … 5 4 … the root causes are addressed … … the risk areas and… Risk areas Legends Root causes Quality of submitted financial statements Quality of submitted performance reports Supply chain management Slow response by management in addressing the root causes of poor audit outcomes Movement Improvement Stagnant or limited progress Regressed (2) CMS, NDoH Human resource management Information technology Financial health 2014-15 2013-14

8. 1.1 Quality of submitted financial statements 2014-15 PFMA Outcome after corrections Outcome if NOT corrected Financially unqualified (with findings/without findings) Financially qualified (qualified/ disclaimed with findings) no auditees 2014-15 Avoided qualifications by correcting material misstatements during audit process Outcome if NOT corrected Outcome after corrections 67% (2) CMS, MRC 1 auditee 2013-14 8

9. 1.2 Quality of annual performance reports 2014-15 PFMA 67% A total of of annual performance reports were reliable and useful compared to 67%in the previous year. With no findings With findings Improved Usefulness Reliability Stagnant or little progress Regressed All auditees who submitted information did so in time for the audit. 9

10. 1.3 Most auditees did not comply with legislation in the following areas 2014-15 PFMA 1. 2. 3. Quality of annual financial statements submitted Prevention of unauthorised, irregular and/or fruitless and wasteful expenditure Management of procurement and or contracts Good Of concern Intervention required 5. 6. 4. Improvement Management of strategic planning and performance Human resource and consequence management Internal audit and audit committee Stagnant or limited progress Regressed

11. 2. UIFW expenditure – portfolio 2014-15 PFMA Fruitless and wasteful expenditure Unauthorised expenditure Irregular expenditure Expenditure not in accordance with the budget vote/ overspending of budget or programme Expenditure incurred in contravention of key legislation, prescribed processes not followed Expenditure incurred in vain and could have been avoided if reasonable steps had been taken. No value for money! Definitions Legends: Decrease inexpenditure No change Increase in expenditure # - An irregular payment amounting to R391 million was made contrary to the DORA payment schedule. This was recovered prior to the end of the financial year.

12. 2.1 Irregular expenditure – portfolio (CY vs. PY split) 2014-15 PFMA Irregular expenditure identified in CY Irregular expenditure relating to CY Irregular expenditure relating to PY Expenditure incurred in contravention of key legislation, prescribed processes not followed Expenditure incurred in contravention of key legislation, prescribed processes not followed Expenditure incurred in contravention of key legislation, prescribed processes not followed Definitions

13. 3. Section 4(3) outcomes for the health portfolio 2014-15 PFMA Unqualified with findings With no findings With findings Improved Stagnant or little progress Regressed

14. 3.1 Section 4(3) outcomes – compliance and irregular expenditure 2014-15 PFMA New findingin current year Repeat finding Legends: Decrease in expenditure No change Increase in expenditure

15. Management assurance First level of assurance Oversight assurance Second level of assurance Independent assurance Third level of assurance Senior management Senior management Accounting officers/ authority Accounting officers/ authority Executive authority Coordinating/ monitoring institutions Internal audit Audit committee Oversight (portfolio committees/ councils) Public accounts committee National Assembly 4. Combined assurance – complementary mandate Required assurance levels Required assurance levels Required assurance levels Extensive Extensive Extensive Extensive Extensive Extensive Extensive Extensive Extensive • Management’s assurance role • Senior management– take immediate action to address specific recommendations, and adhere to financial management and internal control systems • Accounting officers/authority– hold officials accountable on implementation of internal controls, and report progress quarterly and annually • Executive authority– monitor the progress of performance, and enforce accountability and consequences • Oversight’s assurance role • National Treasury/DPSA– monitor compliance with laws and regulations, and enforce appropriate action • Internal audit– follow up on management’s actions to address specific recommendations, conduct own audits on the key focus areas in the internal control environment, and report on quarterly progress • Audit committee– monitor risks andthe implementation of commitments on corrective action made by management as well as quarterly progress on the action plans • Role of independent assurance • Oversight (portfolio committees)– review and monitor quarterly progress on the implementation of action plans to address deficiencies • Public accounts committee– exercise specific oversight on a regular basis of any report that it may deem necessary • National Assembly – provide independent oversight of the reliability, accuracy and credibility of national and provincial government

16. 5. Minister’s commitments to address root causes 2014-15 PFMA Status of key commitments by minister Controls will be strengthened to review and monitor compliance with legislation. A qualified chief financial officer will be recruited at the CCOD. An electronic health patient registration system will be designed and implemented to support the reliable recording of health data. Not implemented In progress Implemented New

17. 2014-15 PFMA Health sector outcomes

18. 6. Overall audit outcomes for health sector 2014-15 PFMA Unqualified no findings Unqualified with findings Qualified with findings Adverse with findings Disclaimer with findings Audits outstanding 18

19. 7. Overall improvement in audit outcomes 2014-15 PFMA 19

20. 8. Movement of audit outcomes from 2013/14 to 2014/15 2014-15 PFMA 20

21. 9. Qualification areas 2014-15 PFMA Improved Stagnant or little progress Regressed 21 21

22. 10. Auditor-general’s focus areas 10.1 Quality of submitted financial statements 2014-15 PFMA Outcome after corrections Outcome if NOT corrected Financially unqualified with findings Financially qualified (qualified/ disclaimed with findings) 1 auditee (LP) 2014-15 Financially unqualified with findings Financially qualified (qualified/ disclaimed with findings) Avoided qualifications by correcting material misstatements during audit process Outcome if NOT corrected Outcome after corrections 100% (10) 3 auditees (NAT, NW, WC) 2013-14 22 22

23. 10.2 Quality of annual performance reports 2014-15 PFMA 100% Annual performance reports of of auditees were not reliable compared to 90% in the previous year. The APR was not useful for of auditees, remaining unchanged from the previous year. 30% With no findings With findings Usefulness Reliability Improved Improved Usefulness Stagnant or little progress Stagnant or little progress Regressed Regressed 23 23

24. 2014-15 PFMA 10.3 Most auditees did not comply with legislation in the following areas following areas 2014/15 2013/14 24

25. 11. UIFW expenditure sector (Erratum) 2014-15 PFMA Fruitless and wasteful expenditure Unauthorised expenditure Irregular expenditure Expenditure not in accordance with the budget vote/ overspending of budget or programme Expenditure incurred in contravention of key legislation, prescribed processes not followed Expenditure incurred in vain and could have been avoided if reasonable steps had been taken. No value for money! Definitions Correction of errors in first submission Legends: Decrease in expenditure No change Increase in expenditure

26. 11.1 Irregular expenditure sector (CY and PY split)-(Erratum) 2014-15 PFMA Total irregular expenditure identified for the year Irregular expenditure relating to CY Irregular expenditure relating to PY Expenditure incurred in contravention of key legislation, prescribed processes not followed Expenditure incurred in contravention of key legislation, prescribed processes not followed Expenditure incurred in contravention of key legislation, prescribed processes not followed Definitions Correction of errors in first submission

27. 2014-15 PFMA 12. Root causes should be addressed (top three) 2014/15 2013/14 27

28. 2014-15 PFMA 12.1 Root causes should be addressed (top three) 28

29. Questions